Senate Panel Expected to Close Sales Tax Loophole

The loophole allows some online retailers to escape having to pay state sales taxes.

Federal law says a retailer must have a legal nexus to the state before it can be forced to collect sales taxes. That usually means a brick-and-mortar store. But it also means Target.com has to levy the state's 6.6 percent sales tax on shipments to Arizona residents because it has stores here. Michelle Ahlmer of the Arizona Retailers Association said the state cannot go after pure interstate sales. But she said this this measure would go after firms that really do have a presence here but hide it.

"If you come to Arizona," said Ahlmer, "and you hire under one name but you have a subsidiary that owns the physical property, you can't claim that that's not you."

Ahlmer said a study her association commissioned shows the state is losing at least $300 million a year in taxes.

Senator Al Melvin, who is sponsoring the legislation, said the issue for him is not so much lost revenues but jobs.

"I recall a fella in my district who had a Christian bookstore," said Melvin. "In fact, he had three of them. And he had to close one of them. He couldn't compete with the online book sales."

One target of the measure is Amazon.com which has what it calls a fulfillment center to process orders in the state but insists that's not part of the retailer.